I have been growing rather nervous about the stock market this year. On one hand, things seem to have been going well.
The FTSE 100 index of leading British shares, for example, has hit a new all-time high this year, for example.
But what has made me nervous is a combination of two factors. One is a weak economic outlook. The other is a high level of uncertainty when it comes to global geopolitics.
Mixed data
The data is mixed, in fairness. On some counts the economy looks like it might be doing pretty well. Second quarter figures for US GDP released this week, for example, were stronger than many commentators expected.
But looking at both economics and geopolitics, I continue to see a high level of uncertainty. This is rarely a positive thing for stock markets.
History contains a number of autumn stock market crashes, as the long lazy summer holiday gives way to harsh economic reality. History shows that such a crash will happen at some point.
But in reality, nobody knows when. It could be in the autumn, but it might be even sooner – or even years down the line.
Here’s what I’m doing
On that basis, there are two things I am doing now. One is keeping some spare cash ready to invest when a great opportunity presents itself.
The challenge for me in this regard is that there are already so many shares in today’s stock market that I think look like great bargains, that I am currently sitting on only a small percentage of my portfolio as cash not shares!
The second thing I am doing is updating my wish list of shares to buy. Like billionaire investor Warren Buffett, I aim to buy great companies at attractive prices. There are some companies I currently think have great businesses – but do not have attractive share prices.
A stock market crash could change that – but maybe not for long. In such a time, bargain hunters may swoop on the market, looking to buy shares in quality companies on the cheap. Buffett was a big buyer during the 2008 financial crisis.
That means such a moment may potentially throw up some great opportunities – but speed may be of the essence. Making a list now is one way of getting ready to act quickly when the moment comes.
This share’s on my list
For example, one share I will happily own if I can buy it at what I see as an attractive price is Apple (NASDAQ: AAPL). The tech giant is still Buffett’s largest shareholding. He has been reducing his stake over the past couple of years though.
We do not know his exact reasoning. To me, Apple stock arguably looks overvalued. It has moved up 97% over the past five years, but post-tax earnings have shrunk over the past couple of years.
Meanwhile, the company faces risks including rising low-cost Asian competition moving into more premium parts of the market and the high costs of building out infrastructure to enable Apple’s AI ambitions.
Still, it remains hugely profitable and I expect its large installed user base will help keep things that way. A strong brand, proprietary technology and proven business model all add to its attractions for me.
